In today’s technically advanced society the collection and study of digital images has become an important aspect of various off-line applications that range from medical diagnosis to exploring the Martian surface for traces of water. Various industries have recently started moving towards vision based systems to monitor several of their manufacturing processes. Except for some simple on-line applications, these systems are primarily used to analyze the digital images off-line. This thesis is concerned with developing a more powerful on-line digital image analysis technique which links the fields of traditional digital image processing with a recently devised statistically based image analysis method called multivariate image analysis (MIA). The first part of the thesis introduces the area of traditional digital image processing techniques through a brief literature review of three of its five main classes (image enhancement, restoration, analysis, compression, & synthesis) which contain most of the commonly used operations in this area. This introduction is intended as a starting point for readers who have little background in this field, and as a means of providing sufficient details on these techniques so that they can be used in conjunction with other advanced MIA on-line monitoring operations. MIA of multispectral digital images using latent variable statistical methods (Multi-Way PCA / PLS) is the main topic covered by the second part of this thesis. After reviewing the basic theory of feature extraction using MIA for off-line analyses, a new technique is introduced that extends these ideas for image analyses in on-line applications. Instead of directly using the updated images themselves to monitor a time- varying process, this new technique uses the latent variable space of the image to monitor the increase or decline in the number of pixels belonging to various features of interest. The ability to switch between the images and their latent variable space then allows the user to determine the exact spatial locations of any features of interest. This new method is shown to be ideal for monitoring interesting features from time-varying processes equipped with multispectral sensors. It forms a basis for future on-line industrial process monitoring schemes in those industries that are moving towards automatic vision systems using multispectral digital imagery.